Hong Kong

ABOUT HONG KONG

Hong Kong’s geographical position as a gateway between the East and West has made it an attractive center for international trade. Hong Kong is the natural gateway for trade and investment in Mainland China. With its international outlook and its status as the region’s premier business hub, Hong Kong serves as an ideal base for international businesses looking to tap the vast opportunities in China and other parts of Asia.

Hong Kong attracts foreigners from all over the globe to register their businesses in Hong Kong because the simple tax system, elite location, developed communications, and free circulation of goods permits for businesses of all industries to succeed and flourish in the Hong Kong economy.

Advantages of doing business in Hong Kong

A Hong Kong company only requires 1 director and 1 shareholder, who can be non-resident foreigners.

There is no requirement for a physical office space to to be complete teh company registration. A registered address is sufficient.

Ready-made companies are also permitted in Hong Kong.

Consequently, the world bank ranked Hong Kong as the 4th best jurisdiction in the world to start to a new business in their annual Doing business.

A Hong Kong company is legally tax exempt if it has no operations in Hong Kong. This legitimate tax advantage makes the city attractive to entrepreneurs and established business.

Setting up a Hong Kong offshore company is an excellent way to boost global profits as there is no withholding tax, sales tax, VAT, import and export tax or capital gains tax.

For companies with operations in Hong Kong, the corporate tax rate is among the lowest in Asia at 16.5%. Furthermore, such as a company will benefit from the 37 international double tax treaties signed by the Hong Kong government to minimize withholding tax on payments abroad.

Being a founding member of the world Trade Organization, Hong Kong promotes free trade and does not charge tariffs on imports and exports, Furthermore, bureaucratic procedures like licensing and government registration are kept to a minimum.

English is the official business language in Hong Kong, all formal company documents are written in both English and Chinese. As a result, a foreign entrepreneur is likely to find working in the city easy.

Obtaining bank credit is relatively simple in Hong Kong. Consequently, the city is ranked as 19th best jurisdiction in the world for securing business credit.

Along with Singapore, Hong Kong is the leading financial centre in Asia. The cityäs International Financial Centre hosts many global financial firms, insurance companies, banks and asset management firms.

A Hong Kong company benefits from the absence of exchange controls to restrict FDIs or income repatriation. This coupled with city’s status as a financial centre make it an excellent location for treasury accounts, cash management and other corporate banking services.

Hong Kong is itself a free economic zone. Therefore a resident company is a great business vehicle for foreign investors who need a regional distribution base or headquarters.

The local government is also ranked as the 17th least corrupt place in the world, This makes it easier for foreign investors to depend on the local laws to protect their assets.

Disadvantages of doing business in Hong Kong

All Hong Kong banks require the directors, shareholders and bank account signatories to travel to Hong Kong for an account opening interview, no exceptions.

Citizens of certain nationalities are not eligible for a Hong Kong investment Visa. Foreign investors from Afghanistan, Albania, Cambodia, Cuba, Laos, North Korea, Nepal and Vietnam cannot register their businesses in Hong Kong.

Effective from March 2014, at least one of the directors of a Hong Kong company must be natural person. As long as one individual is appointed as a director, corporate directors are still permitted

Hong Kong banks have become very selective of their customers due to the very high global demand for their services. Consequently, opening a corporate bank account in the city can be a cumbersome process.

Hong Kong has relative weak intellectual property laws and protection, especially when compared to Singapore. However, looser protection of ideas has led to a proliferation of innovation in Hong Kong and wider China, particularly the nearby Shenzhen.

The quality of conversation English for an average local employee is relatively poor when compared to the other investment hotspots like Singapore, Malaysia, Dubai and Indonesia.

Residency in Hong Kong

Those who have been living in Hong Kong for 7 consecutive years are able to apply for permanent residency and the “right of abode”. The benefits of having permanent residency include access to government programs and the right to vote. However, if you leave Hong Kong for more than 3 years then you will lose your status.

There isn’t really such a concept as “Hong Kong citizenship.” Instead, China and its residents are Chinese citizens with a “right of domicile” in Hong Kong. To become a citizen, you would need to apply for Chinese citizenship. Since China does not accept dual citizenship, you would need to renounce your native citizenship. This process is a long, detailed, complicated, and expensive one that offers few benefits, especially in comparison to simply becoming a permanent resident. As a result, most expats simply become permanent residents. It is possible, for instance, to be a permanent resident in Hong Kong and maintain your American citizenship status.

Who can apply for citizenship?

Most guests can remain in Hong Kong without a visa for a measure of time, going from seven days to 180 contingent upon citizenship. Visitor visas are required for nationals of specific nations, including Afghanistan, Vietnam, and Congo. The Immigration Department keeps up a full rundown of which guests require visas and to what extent without visa periods last.

People who wish to move to Hong Kong or remain past their allotted time without visa restrict need to become a citizen of Hong Kong. Businesses can be fined up to 350,000 Hong Kong dollars if they employ people without citizenship. Those with visas, or who have lived there beyond 7 years, you are then given a Hong Kong government ID card. This offers you residency and offers access to country advantages.

Hong Kong citizenship visa for dependents

Dependents, which incorporate life partners and children less than 18 years old, can move to Hong Kong with a representative. Applications must be submitted in the meantime to study, live and work in Hong Kong. Unmarried couples including gay couples are ineligible for dependent visas. They may have the capacity to fit the bill for a delayed guest visa in the event that they can demonstrate they were seeing someone for a stretched- out period before moving to Hong Kong, yet these visas are hard to acquire.

Following several years of living in Hong Kong, you can have the advantages of turning into an inhabitant just as the local people have, for example, access to state-funded schools. So, to meet all requirements for citizenship residency, outside nationals need to remain in Hong Kong

Taxes in Hong Kong

Residence:A corporation (or other entity) is resident if it is incorporated in Hong Kong or managed and controlled in Hong Kong.

Basis: Generally, only Hong Kong-source income is subject to Hong Kong profits tax.

Taxable income: Profits tax is levied on the Hong Kong-source profits of business carried on in Hong Kong. In determining the source of profits, Hong Kong generally adopts the “operating test”, which involves identifying the activities that are most important in generating the profits and the place at which these activities are carried out. Expenses generally are deductible to he extent they are incurred in the production of profits that are chargeable to tax. However, domestic expenses, capital expenditure and losses, taxes and the other expenses not incurred for the purpose of producing profits are not deductible. If a company’s profits are derived from both Hong Kong sources and non-Hong Kong sources that are not accessible to profits tax, expenses attributable to the non-Hong Kong-source profits are not deductible.

Taxation of dividends: Dividends generally are exempt from profits tax.

Capital gains: Capital gains are not taxable. However, gains on the disposal of assets may be subject to profits tax if the disposal constitutes a transaction in the nature of trade ( a factual determination).

Losses: Losses attributable to a business that earns profits subject to profits tax may be carried forward indefinitely and set off against future taxable profits of the company. There are specific anti-avoidance rules to prevent the purchase of a loss company for the sole or dominant purpose of using the company’s losses. Losses cannot be carried back.

Foreign tax credit: Where there is a double tax agreement, foreign tax paid may be credited against profits tax on the same profits, but the credit is limited to the amount of Hong Kong tax payable on the same income.

Participation exemption: No

Taxable income:

10%

Taxation of dividends:

–

VAT registration:

No

– VAT Rates:

No

Surtax:

No

Alternative minimum tax:

No

Withholding tax (general):

–

– From Dividends

There is no withholding tax on dividend distributions from a Hong Kong entity.

– From Royalties

Royalty payments made to a nonresident are deemed to be taxable in Hong Kong if made for the use of, or the right to use, intangibles in Hong Kong, or outside Hong Kong where the royalty payments are deductible for profits tax purposes. The amount deemed taxable is 30% of the gross amount of the royalties paid, resulting in an effective rate of 4.95% (16.5% x 30) (or an effective rate of 4.5% for a noncorporate person (15% x 30%)). If the royalty is paid to an associated nonresident for the use of intangibles that previously were owned by a person carrying on business in Hong Kong, 100% of the royalty is deemed to be taxable, resulting in an effective rate of 16.5% (15% for a noncorporate person).

– From Interests

There is no withholding tax on interest payments from a Hong Kong entity

Transfer tax:

No

Capital gains tax:

No

Real property tax:

Property owners are subject to property tax on rental income derived from property in Hong Kong. Property tax is charged at the standard rate of 15% of the net assessable value of the property as determined by rent, service charges and fees paid to the owner, less an allowance of 20% for repairs and maintenance. A company that derives rental income from property is subject to profits tax and may apply for an exemption from property tax.

Social security:

For employees whose monthly income is HKD 7100 or more, the employer is required to deduct 5% (capped at HKD 1500) as the employee’s contribution to the Mandatory Provident Fund scheme, and then pay an additional 5% as its own contribution.

Payroll tax:

No

Stamp duty:

Stamp duty is charged on documents connected with the lease, sale or transfer of immovable property in Hong Kong, and the the sale of shares. If the above are transferred at less than market value, stamp duty may be imposed based on the market value at the date of transfer. Stamp duty on the transfer of Hong Kong shares is 0.2% of the value of the shares transferred, which is shared equally between the buyer and seller. An exemption may available for an intragroup transaction if certain conditions are satisfied. The rate on the lease of immovable property is 0.25% of the total rent payable for a short-term lease (one year or less), 0.5% of the annual or average annual rent for a one to three-year lease, and 1% of the annual or average annual rent for a lease exceeding three years. The maximum ad valorem stamp duty on the sale and conveyance of nonresidential property is 8.5% of the value of property transferred. The ad valorem stamp duty rate for residential property is a flat rate of 15%, with certain exemptions and exceptions. In addition, for residential property acquired on or after 27 october 2012, a Special Stamp duty ranging from 5% to 20% is levied if the property is sold within 36 months of purchase. In addition to ad valorem stamp duty and SSD, a Buyer’s Stamp Duty at a flat rate of 15% applies to residential property if it is acquired by any person (including a limited company), except a Hong Kong permanent resident, on or after 27 October 2012.

Capital duty:

Capital duty was abolished in 2012

Tax treaties:

Hong Kong has signed 38 double tax agreements. Hong Kong signed the OECD MLI on 7 June 2017

Anti-avoidance rules:

–

– Transfer pricing

There are limited provisions in the tax law governing business carried on with closely connected nonresident persons.

– Thin capitalization rule

There are no thin capitalization rules, but the deduction of interest expense is limited, especially with regard to interest paid to nonresidents

– Disclosure requirements

Certain related party transactions must be disclosed in the profits tax return.

Compliance for corporation:

Tax year: The tax year starts on 1 April and ends on 31 March of the following year. The basis period of tax computation is the accounting year ended in the tax year.

Consolidated returns: Hong Kong does not allow groups of companies to file consolidated returns and there is no group loss relief for members of a group of companies.

Filling requirements: The tax returns are issued annually on the first business day of April for companies to report their profits in the accounting year ended in the previous tax year, which ends on 31 March. Companies whose financial years and between 1 December and 31 March normally are granted an extended period to file their tax returns. Assessments are issued once the Inland Revenue Department receives the tax return. Companies ( and unincorporated businesses) also must pay a provisional profits tax for the following tax year, at a rate of 16.5% of the current year’s profits. This payment is credited against the final profits tax liability, with any excess payment refunded.

Penalties: Penalties may be imposed for failure to comply with the Inland Revenue Ordinance (IRO). The Commissioner of Inland Revenue has the authority to initiate prosecution, to compound or to assess additional tax (which is a form of penalty) in respect of the offense.

Rulings: Taxpayers may request an advance ruling from the Inland Revenue Department on the application of provisions of the IRO. An advance pricing arrangement program has been introduced.

Tax authorities: Inland Revenue Department

Personal Taxation in Hong Kong 2018

Personal taxation basis:

The Hong Kong personal income tax (salaries tax) covers all income arising in or derived from Hong Kong from an office, employment or pension. Interest income earned by an individual is exempt from tax in Hong Kong. Capital gains on financial transactions are also effectively exempt from tax.

Tax Residence:

Foreign residents who visit Hong Kong for no more than 60 days in a tax year (from 1 April to 31 March of the following year) are not liable to salaries tax on their employment income. Employees who already have paid tax of substantially the same nature as Hong Kong salaries tax in any territory outside Hong Kong are exempt in respect of income derived from services rendered in that territory outside Hong Kong

Filling status:

A married couple may opt for joint or separate assessment.

Income tax rates in Hong Kong:

Individuals are taxed on their total Hong Kong income from employment, less deductible expenses, charitable donations and personal allowances. The source of employment income is determined by various factors, including the place where it is enforceable; the residence of the employer; and where the salary is paid. Income from non-Hong Kong employment is deemed to be sourced in Hong Kong if it is attributable to services rendered in Hong Kong. Director’s fees paid to directors of a company, the control and management of which is exercised in Hong Kong, are director resides. Taxable income includes commissions, bonuses, cost of living allowances, stock option gains, awards, gratuities, allowances (including those for education) and other perquisites derived from employment. Dividend income is not taxed, but gains from the exercise of share options are taxable.

Inheritance/estate tax in Hong Kong:

No

Net wealth/net worth tax in Hong Kong:

No

Tax year:

The tax year starts on 1 April of each year and ends on 31 March of the following year.

Legal services in Hong Kong for all Novasigma Clients including companies and their owners and directors

Novasigma has built in Hong Kong a team of lawyers, associates and legal advisers to assist our clients with a business and tax planning, overseas business operations, risk management and other legal matters. Primarily focused on business transactions, Novasigma Accounting & Law corporate attorneys are a great asset to a small and large businesses. With a background on corporate law, our corporate lawyers and legal advisers have an in depth knowledge on the transactions that may put your business at risk of litigation. These include contracts and negotiations, taxation laws, business structuring, buy/sell agreements, and intellectual property, among others.